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On December 1, 2016, any employees who earn less than $47,476 annually will be entitled to overtime and must be treated as non-exempt, as per the U.S. Department of Labor’s final rule (“Final Rule”).
Don’t wait any longer to address this critical change in the law.
Find out how the Final Rule will affect your current employee classifications and pay practices, and the consequences of not complying with the law.

If the U.S. Department of Labor’s (DOL) proposed rule is adopted, any exempt employees who earn less than $50,440 per year will need to be reclassified as non-exempt. These employees will now earn overtime if they work over 40 hours per week.

This proposal would increase the salary level required significantly in order for the employee to remain qualified for the “white collar” exemptions.

To learn more about this proposal and how it may affect you if it goes into effect, please read our full Employment Law Advisor.

June’s “Tip of the Month” addressed the importance of paying an exempt employee on a salary basis in order to maintain the employee’s exemption from the overtime requirements of the federal Fair Labor Standards Act (“FLSA”). It also addressed the way in which making a deduction from an exempt employee’s regular paycheck risks the loss of the employee’s “salary basis” and exempt status. This month’s “Tip of the Month” examines what happens to an employee’s “salary basis” and exempt status when an employer adds to, instead of deducting from, an employee’s regular paycheck.

Unlike making a deduction, making an addition to an employee’s paycheck does not jeopardize the employee’s status as “paid on a salary basis.” Department of Labor regulations state that an employer can provide an exempt employee with additional compensation without losing the exemption or violating the salary basis requirement, so long as the employee’s pay includes a guarantee of at least a minimum weekly amount of $455 or greater.

Thus, an exempt employee who receives sales commissions on top of a base salary, or an exempt employee who receives additional “overtime” pay for time worked beyond his or her regular schedule, does not lose his or her “salary basis” status and as a result remains exempt from the overtime requirements of the FLSA.

Generally, to qualify as exempt from overtime requirements under the federal Fair Labor Standards Act’s “white collar exemptions,” an employee must meet certain tests regarding his or her job duties and must be paid on a salary basis. (N.B., applicable regulations provide for exceptions from the salary requirement for certain sales employees, teachers, employees practicing law or medicine or to certain situations where an employee is paid on a fee basis.)

Understanding what qualifies as “a salary basis” and how to maintain the “salary basis” is thus essential to maintaining an employee’s exempt status. An employee is paid on a salary basis only if he or she is paid a predetermined salary of at least $455 per week. To maintain exempt status, the salary amount cannot be reduced because of variations in the quality or quantity of the employee’s work, and in general, employers must ensure the employee’s salary amount is paid for each and every workweek in which work is performed.

This means that if an exempt employee is absent an employer may not dock, deduct, or reduce the employee’s salary without risking the loss of the employee’s exempt status. Employers may not reduce an employee’s salary even if it is the employer who initiates the absence, e.g., by closing the workplace for a holiday or furlough.

There are certain circumstances set forth in Department of Labor regulations, 29 C.F.R. §§ 541.602-605 (and, as applicable, state law), under which an employer might make a deduction without losing the employee’s exemption. For example, employers need not pay exempt employees for any workweek in which they perform no work at all. An employer might also take a deduction when: an exempt employee is absent from work for personal reasons other than sickness or disability; an exempt employee is absent for one or more full days due to sickness or disability if the deduction is made in accordance with a bona fide plan, policy or practice of providing compensation for salary lost due to illness; an employer offsets amounts an employee receives as jury or witness fees, or military pay; an employer imposes good faith penalties for infractions of certain safety rules; and when an employer imposes a disciplinary suspension of one or more full days pursuant to workplace conduct policies. Employers should check with legal counsel before making a deduction pursuant to one of these exceptions.